NEPC Review: Redefining Teacher Pensions: Strategically Defined Benefits for New Teachers and Fiscal Sustainability for All and Buyer Beware: The Risks to Teacher Effectiveness from Changing Retirement Benefits

Two recent studies from the Center for American Progress raise a variety of issues about teacher pension plans. The debate centers around changing from the traditional defined-benefit plans to cash balance plans, where the teacher and the school contribute to a fund as a constant, defined, percentage of pay every pay period.

Both reports rely on bodies of evidence concerning: (1) how a typical teacher’s productivity (measured by a teacher’s impact on test scores) changes over her or his career, and (2) how teachers’ decisions to enter, stay, or retire from teaching depend on annual changes in the value of their pension plan. Unfortunately, there is limited evidence on these two questions, and conclusions about these matters are cloudy.  Shifting to a new pension design to save money — as California is contemplating — may have exactly the opposite effect; bolstering current plans may prove the more economical and practical approach.

While this review raises some concerns, these two new reports perform a service — particularly when read together — in raising issues in this developing area of policy inquiry. Moreover, both reports appropriately acknowledge the limited nature of our knowledge in this area and the small number of quality research reports that are available.

Documents Reviewed: